Question

1. 20.37 What is a Dividend Reinvestment Plan (DRIP)?

Answer 1

A dividend reinvestment plan (DRIP) is a method of reinvesting cash dividends received from a company back into the stock of that company i.e, to buy more shares of the same company. It incrementally increasing one’s position in the company. Under this method, company usually asks investors whether they want to take the dividends or reinvest the same in the stocks. Any investor can use this strategy since most brokerage accounts have automatic dividend reinvestment programs that automate the purchase of new shares in that same stock, exchange-traded fund or mutual fund.
Benefits:
1.   No brokerage or commission as we are buying shares directly from the company.
2.   Sometime companies may even offer a discount on stock purchased through a DRIP.
3.   Enrolling is as simple as contacting the broker
4.   Ability to purchase fractional shares of the company which is most of the time not be available from broker